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Pakistan Signals Extended Pause on Rate Hikes

Ben Bartenstein and Faseeh Mangi

(Bloomberg) -- Pakistan must negotiate the threat of a slowing economy while seeking to lower inflation, central bank Governor Reza Baqir said, signaling an extended pause in the interest rate-hike cycle.

The “balance of risks” is shifting as the pace of economic growth slows, Baqir said in an interview in Washington. The South Asian nation currently has among the highest real rates -- that’s adjusted for inflation -- in Asia after more than doubling borrowing costs to 13.25% since the start of 2018.

The State Bank of Pakistan last month kept interest rates unchanged for the first time in more than a year after inflation then showed signs of steadying following a change in calculation methodology. Consumer prices have since accelerated above 11%, even as economic expansion is seen slowing.

The Asian Development Bank lowered its fiscal 2019 growth forecast for Pakistan to 3.3% from 3.9% previously, amid a broader slowdown in the global economy. That’s lower than the central bank’s projection of 3.5% growth in the full-year ending June 2020, and compares with a 5.5% expansion in 2018.

Other key points from the governor’s interview and presentation:

Inflation outlook didn’t change enough in September to merit an interest-rate cut, but inflationary pressures will probably recede in coming monthsBaqir said in a presentation at the Institute of International Finance’s annual meeting that devaluations make the exchange-rate more market-basedPakistan must raise its savings rate to escape the endless cycle of International Monetary Fund dealsPakistan values friendship with China, but wants to build more alliances

To contact the reporters on this story: Ben Bartenstein in New York at bbartenstei3@bloomberg.net;Faseeh Mangi in Karachi at fmangi@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Karthikeyan Sundaram, Karl Lester M. Yap

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